Briefly respond to each of the following and be sure to explain your response.
1. If the economic incidence of a tax is different from its legal assignment does that mean a law is being broken? Explain.
2. We would like our tax system to fair. What are some of the generally accepted principles of tax design that relate to the goal of equity?
3. Give at least two examples of how the principles of tax design can conflict with each other.
4. If we decide to base taxes on income, will there still be ambiguities in how to calculate the tax base? (Note how this relates to the Haig-Simons definition of income.)
5. Which industry structure is more likely to pass a tax on to the consumer, monopoly or perfect competition?
6. Define regressive, progressive, and proportional taxes.
7. What’s meant by the excess burden of a tax?
8. What influences the magnitude of excess burden?
9. Using a simple 2 commodity (bread and wine), 2-factor (labor and capital) model with no savings and assuming bread is more labor intensive than wine, who will tend to bear the burden of a tax on labor used to produce bread?
10. If a tax doesn’t generate any revenue, does that mean it doesn’t have any cost?